Charlie's Holdings Reports Second Quarter 2020 Results

Rhea-AI Summary

Charlie's Holdings, Inc. (OTC PINK: CHUC) reported a 39% decline in Q2 2020 revenue, falling to $4.16 million from $6.82 million in Q2 2019 due to decreased sales in nicotine and CBD products. Gross profit also decreased by 39% to $2.43 million. Operating loss narrowed to $758,000, a 78% reduction year-over-year. The company is on track with its PMTA submission by the end of August, spending nearly $5 million in preparations without any reported red flags on initial data.

Positive

• Initial PMTA submission on schedule and budgeted for end of August.
• Management reduced expenses, saving approximately $170,000 in Q2 2020.
• Increasing sales mix and participation in volume incentive programs.

Negative

• 39% decrease in Q2 revenue at $4.16 million compared to last year.
• Gross profit fell by 39% leading to a gross margin decline.
• Operating loss increasing to $5.11 million for the six months ended June 30, 2020.

PMTA Initial Submission Is On Schedule and On Budget for the End of August

COSTA MESA, CA / ACCESSWIRE / August 17, 2020 / Charlie's Holdings, Inc. (OTC PINK:CHUC) ("Charlie's" or the "Company"), an industry leader in both the premium, nicotine-only, e-cigarette space and the hemp-derived, CBD wellness space, announced today the Company's financial results for the second quarter ended June 30, 2020.

Key Highlights for Q2 2020

• Increased sales mix to distributors
• Increased participation from distributors and retailers in volume incentive programs
• Added margin from direct-to-consumer e-commerce sales of CBD products
• Stabilized manufacturing costs

Premarket Tobacco Application ("PMTA")

• Initial submission is on schedule and on budget for the end of August
• Nearly $5 million spent over two years to prepare submission
• Partnership with Blackbriar Regulatory Services utilizing numerous contract research organizations to analyze, compile, and publish necessary data
• Submission to include scientific data and analysis along with clinical studies
• Initial data finds no red flags to report

Management adopted a 15% reduction in pay for May and June 2020 and reduced personnel across several departments which resulted in approximately $170,000 of savings during the quarter ended June 30, 2020.

Management Commentary

"While we continue to experience industry headwinds from the nationwide vaping concerns and the uncertainty brought on from the global COVID-19 pandemic, we have taken the necessary steps to stabilize our manufacturing costs and reduce our operating expenses," stated Brandon Stump, Chief Executive Officer of Charlie's.

Stump, continued, "we remain focused on differentiating ourselves by being an early mover with our preparation for the submission of our PMTA. While the deadline to the Food and Drug Administration ("FDA") has been pushed back to September 9, 2020, we continue to compile more data and remain on track for our submission by the end of August, thanks to our partnership with Blackbriar Regulatory Services. In fact, we recently received minimal comments on our early data submission. We strongly believe our commitment to maintaining the highest standards of regulatory compliance, is a huge differentiating factor for our Company."

Stump, concluded, "we feel that the nicotine based flavored vaping products will continue to be a significant growth opportunity, once all the rightful regulatory changes have been made. We will continue with our plan to obtain marketing authorization for certain of our products through the submission of a PMTA. We expect the total cost associated with our preparation and submission of these PMTAs will total nearly $5.0 million spent over the past two years. In addition, we are evaluating the potential returns associated with obtaining marketing authorization for our other nicotine based vaping products after the September 2020 deadline. We feel that a significant amount of our competitors will not have the resources and/or expertise to complete the extensive and costly PMTA process and that once complete, we will be able to benefit from being one of only a select group of companies operating in the flavored nicotine product space. Finally, we believe the strength of our initial PMTA submission will create opportunity for additional SKUs to be taken through FDA approval. Whether it is through yet another robust PMTA submission or proving substantial equivalence, we look forward to taking additional products through FDA approval."

Financial Results for the Three Months Ended June 30, 2020

Revenue for the three months ended June 30, 2020 was $4,163,000, a decrease of $2,656,000, or 39%, compared to $6,819,000 for the three months ended June 30, 2019. The decrease was due to a $2,064,000 decrease in our nicotine-based product sales and a $571,000 decrease in sales of our CBD wellness products.

Gross profit for the three months ended June 30, 2020 was $2,431,000, a decrease of $1,542,000, or 39%, compared to $3,973,000 for the three months ended June 30, 2019. The resulting gross margin was 58.4% for the three months ended June 30, 2020, compared to 58.3% for the three months ended June 30, 2019.

General and administrative expense for the three months ended June 30, 2020 was $2,428,000, a decrease of $3,946,000, or 62%, compared to $6,374,000 for the three months ended June 30, 2019. This decrease is comprised of approximately $4,400,000 of non-cash, stock-based compensation, employee bonus and other transaction costs related to the share exchange expensed in the quarter ended June 30, 2019, offset by an increase of approximately $500,000 in various other general and administrative expenses during the quarter ended June 30, 2020. The decrease in transaction related costs includes $2,600,000 in additional non-cash, stock-based compensation, $1,600,000 of employee bonuses and $150,000 of other expenses incurred as a result of our share exchange in 2019. Payroll, insurance and bad debt expenses experienced the most significant year over year change during the quarter ended June 30, 2020 and accounted for approximately $435,000 of the $500,000 increase in other general and administrative expenses.

Sales and marketing expenses for the three months ended June 30, 2020 was $353,000, a decrease of $457,000, or 56%, compared to $810,000 for the three months ended June 30, 2019. The decrease was primarily due to lower commissions paid for reduced sales and curtailed spending on several marketing programs due to uncertainty in the global economy.

Research and development expense for the three months ended June 30, 2020 was $408,000, an increase of $408,000, compared to $0 for the three months ended June 30, 2019. The increase was primarily due to incurring costs associated with our PMTA registrations.

Operating loss for the three months ended June 30, 2020 was $758,000, a decrease of $2,453,000, or 78%, compared to $3,211,000 for the three months ended June 30, 2019.

Net loss for the three months ended June 30, 2020 was $644,000, a decrease of $2,389,000, or 79%, compared to $3,033,000 for the three months ended June 30, 2019.

Financial Results for the Six Months Ended June 30, 2020

Revenue for the six months ended June 30, 2020 was $8,568,000, a decrease of $4,898,000, or 36%, compared to $13,466,000 for the six months ended June 30, 2019. The decrease was due to a $5,184,000 decrease in our nicotine-based product sales, offset an increase in sales from our CBD wellness products business of $306,000.

Gross profit for the six months ended June 30, 2020 was $4,873,000, a decrease of $2,997,000, or 38%, compared to $7,870,000 for the six months ended June 30, 2019. The resulting gross margin was 56.9% for the six months ended June 30, 2020, compared to 58.4% for the six months ended June 30, 2019.

General and administrative expense for the six months ended June 30, 2020 was $6,427,000, a decrease of $602,000, or 9%, compared to $7,029,000 for the six months ended June 30, 2019. This decrease is comprised of approximately $2,500,000 of non-cash, stock-based compensation, employee bonus and other transaction costs related to the share exchange expensed in the six months ended June 30, 2019, offset by an increase of approximately $1,900,000 in various other general and administrative expenses during the six months ended June 30, 2020. The decrease in transaction related costs includes $741,000 in additional non-cash, stock-based compensation, $1,600,000 of employee bonuses and $150,000 of other expenses incurred as a result of our share exchange in 2019. Payroll, insurance and bad debt expenses experienced the most significant year over year change during the six months ended June 30, 2020 and accounted for approximately $1,300,000 of the $1,900,000 increase in other general and administrative expenses.

Sales and marketing expenses for the six months ended June 30, 2020 was $924,000, a decrease of $653,000, or 41%, compared to $1,577,000 for the six months ended June 30, 2019. The decrease was primarily due to lower commissions paid for reduced sales and curtailed spending on several marketing programs due to uncertainty in the global economy.

Research and development expense for the six months ended June 30, 2020 was $2,631,000, an increase of $2,631,000, compared to $0 for the six months ended June 30, 2019. The increase was primarily due to incurring costs associated with our PMTA registrations.

Operating loss for the six months ended June 30, 2020 was $5,109,000, an increase of $4,373,000, or 594%, compared to $736,000 for the six months ended June 30, 2019.

Net loss for the six months ended June 30, 2020 was $4,560,000, an increase of $4,002,000, or 717%, compared to $558,000 for the six months ended June 30, 2019.

About Charlie's Holdings, Inc.

Charlie's Holdings, Inc. (OTC Pink: CHUC) is an industry leader in both the premium, nicotine-only, e-cigarette space and the hemp-derived, CBD wellness space through its subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust produces high quality vapor products currently distributed in more than over 90 countries around the world. Charlie's Chalk Dust has developed an extensive portfolio of brand styles, flavor profiles and innovative product formats. Launched in June of 2019, Don Polly, LLC formulates innovative hemp-derived CBD wellness products. Don Polly's high quality CBD products derive from single-strain-sourced hemp extract and high purity CBD isolate crystals.

For additional information, please visit our corporate website at: CharliesHoldings.com and our branded online websites: CharliesChalkDust.com and EnjoyPachamama.com.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ability to successful increase sales and enter new markets; the Company's ability to manufacture and produce product for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations; the impact of competitive products; and the Company's ability to maintain and enhance its brand, as well as other risk factors included in the Company's most recent quarterly report on Form 10-K, Form 10-Q and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.

Investors Contact:

IR@charliesholdings.com
p949-418-4020

SOURCE: Charlie's Holdings, Inc.

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FAQ

What are the Q2 2020 financial results for Charlie's Holdings (CHUC)?

Charlie's Holdings reported a Q2 2020 revenue of $4.16 million, down 39% from $6.82 million in Q2 2019.

How much has Charlie's Holdings spent on their PMTA submission?

The company has spent nearly $5 million over two years on preparations for their PMTA submission.

What is the expected timeline for Charlie's PMTA submission?

Charlie's Holdings is on schedule to submit their PMTA by the end of August 2020.

What was the operating loss for Charlie's Holdings in Q2 2020?

The operating loss for Q2 2020 was $758,000, a reduction of 78% from the previous year.

What challenges are impacting Charlie's Holdings (CHUC) business?

The company faces industry headwinds from vaping concerns and economic uncertainty due to COVID-19.